Conducting Fit & Proper Person Tests

Posted by

Vivek Dodd

on 16 Sep 2021

The autumn is often when preparations begin for annual reassessments of fitness and propriety for Senior Managers (SMFs) and Certified Persons.

But what does ‘Fit and Proper’ really mean? What expectations are there when assessing a person’s fitness and propriety to perform their role?

Let’s be clear; it’s not a tick box exercise where the FCA’s 'Long Form A' questions are answered, and the job is done! The FCA has been very clear that this should not be a ‘rubber stamp exercise’ where ‘nothing new’ is identified.

Importantly, it requires firms to engage with what fitness and propriety (F&P) means and how practically they will assess it, knowing it is highly likely that the FCA may scrutinise the decision made. Particularly if there are instances where things have gone wrong in a firm.

Annual reassessments are a good time to sit down and formally review the evidence. But be wary – the FCA do not see F&P as simply an annual event to be performed as quickly as possible…

So, what does the FCA expect of you?

Free F&P Training Presentation

Fit & Proper testing expectations

The FCA published 'positive' and 'negative' indicators relating to how it expects firms to assess the fitness and propriety of their Senior Managers and Certified Persons.

You can read the full list in our F&P Assessment Tips desk aid. But here we are focussing on a few key points particularly relevant for the annual assessment.

Presentation1

As with all the FCA guidance, each firm must consider the indicators in a proportionate way and look to the intention behind them.

These points all illustrate that the FCA expects firms to have a detailed and thorough F&P process in place, which dovetails with the wider Performance Management process.

The managers performing these checks must be trained to do so, with oversight from the Senior Management Team and a robust escalation process to consider the cases that are not clear cut.

The FCA expects that some people will not meet the requirements expected of them and so appropriate remedial actions will need to be taken to ensure that those individuals remain fit and proper to conduct their role(s).

So, what should you be considering?

The 3 Pillars of the Fit & Proper test

The annual reassessment provides a good opportunity to check that your ongoing monitoring is effective.

Three key areas need to be considered:

  1. Honesty, Integrity and Reputation
  2. Financial Soundness
  3. Competence and Capacity

A. Honesty, integrity & reputation

In practice, any issues relating to honesty and integrity are likely to have been identified and addressed as part of the ongoing monitoring of fitness and propriety and Conduct Rules, including, where required, disciplinary proceedings.

At the annual re-affirmation, it would be somewhat odd for a firm to begin to set out new information relating to instances that have arisen during the year that have not been investigated and an outcome reached.

The regulator is crystal clear that F&P should be continuous and where there are grounds to withdraw approval this should happen.

Free SMCR Culture & Conduct Tips

B. Financial soundness

Financial soundness is demonstrated by an individual who behaves in a financially responsible way and whose financial circumstances do not create a risk of compromising his or her professional and/or ethical conduct.

Most firms will ask the SMF holder or Certified Person to self-attest their compliance at the annual reassessment. The question for the firm is how it might wish to validate this information?

Some conduct an annual blanket screening, whilst others will screen less frequently but apply a risk-based formula to screen a sample each time.

Like in many situations, the onus is on an individual to speak up and share issues that may impact their F&P status.

Free F&P Assessments Desk Aid

C. Competence & Capacity

The focus of annual F&P assessments is most likely to revolve around an employee's ‘Competence and Capacity’.

That requires you to consider the practical realities of the individual’s role and whether they are equipped to perform it to the standard needed.

There are two elements to this – the individual’s competence to perform the role and their capacity to do so. There are some key questions you should consider when assessing competence and capacity.

a. Evidence to demonstrate their competence in their role

  • How have they demonstrated competence with their Job Description (JD) and Statement of Responsibilities (SoR)?
  • Has the individual checked and confirmed that their JD and SoR reflects the role they are performing?
  • Has the individual demonstrated how they have met the JD requirements and identified gaps that need to be bridged?
  • Do they have an up-to-date Development Plan to address these needs?
  • How have they demonstrated that they have adhered to the Conduct Rules?
  • How have they demonstrated that they are meeting the firm’s Diversity & Inclusion mandate?
  • What evidence has been provided to confirm their actions as a senior leader in the firm – setting the tone for the firm's culture?
  • Has their accountable line manager attested to their competence and provided supporting confirmatory comments?
  • If using an automated system, is the supporting evidence attached to it? If not, for example, due to confidentiality reasons, is it available if required?
  • Is there any evidence that calls into question their competence?

b. Evidence to demonstrate their capacity to perform their role

  • Does the individual have the time to perform all their responsibilities adequately?
  • Do they have the appropriate resources? E.g. people, budget etc.
  • Do they have the necessary tools? E.g. technology, systems etc.
  • Are they demonstrably guided and supported by their senior management and leadership team?
  • Have there been any instances that call into question their capacity to perform the role?

Remember, this is also an opportunity for a Senior Manager or Certified Person to call out if they do not think they have been provided with the tools and resources to perform their role! A firm must take very seriously senior individuals citing they are unable to perform their accountabilities due to a failure of their firm to support them properly.

Free Non-financial Misconduct Training

Hybrid working environments

Post pandemic, the new normal is likely to continue to involve working in a hybrid environment. In other words, a combination of remote and in-office working.

When considering an individual’s competence and capacity to perform their role, it is important to factor this into the equation.

For example:

  • How have they managed their role and their people during this time?
  • Have they got the right technology support to allow successful remote working?
  • How are they managing and supporting their people?
  • What measures have they put in place during the pandemic to ensure the wellbeing of their people?
  • How are they monitoring their peoples’ performance remotely?
  • How are they coping with the lack of visibility of their team?
  • How are they overseeing their delegated activities?
  • What steps are they taking to ensure appropriate oversight and governance continues?
  • How have they adapted their working practices to ensure that all their responsibilities continue to be met?
  • How have they revisited customer requirements during this period, particularly vulnerable customers, to ensure that they continue to meet them?
  • What MI and data are they using to help them determine that their regulatory and business accountabilities are being performed as they should be?

Effective management of Fit & Proper tests

Many of you will be using an automated solution to help monitor and record evidence of the fitness and propriety of your Senior Managers and Certified Persons.

As with anything automated, it is important to ensure that you use it wisely and don’t overly rely on it as ‘the solution’ for assessing F&P.

These systems are great for providing you with a home for supporting evidence, prompting assessments when they are due and ensuring core questions are answered.

But they won’t provide the human factor of considering the evidence to identify what it is telling you about that individual’s fitness and propriety.

Next steps

Our free F&P Training Presentation provides practical examples to help you challenge your thinking, and ensure that you are truly considering someone’s competence and capacity in the context of today and the regulator’s expectations.

F&P assessment is fundamentally about equipping leaders to perform their role effectively and, importantly, are doing so in practice! After all, these are the people that set the tone and culture for the firm.

"Culture is defined by the worst behaviour you tolerate"

John Amaechi

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